New Delhi: Air India’s board decided to sack Pawan Arora, recently appointed chief operating officer (COO) of Air India Express under controversial circumstances, even as it discussed the airline’s declining financial health, which could well result in a default in payments.

The government has written to the airline, carrying ₹ 40,000 crore in debt, that it won’t give any more money till Air India meets previously set targets. The board is worried that cash could run out in the next few months if the promised support of ₹ 1,200 crore doesn’t come soon, according to two people familiar with the matter.

One of them, an official at Air India who declined to be identified, said the board decided unanimously to sack Arora.

“There were issues relating to his eligibility, background on which the board was kept uninformed," this person said.

A two-member committee comprising government officials, who do not work for the airline, has been formed to review the appointment of Stefan Sukumar as chief of training, a position not even advertised by the firm as reported by Mint on 2 November, this official said.

Worryingly, the finances are back to haunt the airline and the carrier decided to cancel several previous proposals to save funds at Thursday’s meet.

The same official said that given the government’s conditions for giving more money to Air India, there is a real danger of the airline defaulting on “some commitments".

“The endgame has started," he said.

Anand Mahindra, vice-chairman and managing director of Mahindra and Mahindra Ltd; Amit Mitra, secretary general of industry lobby Federation of Indian Chambers of Commerce and Industry; Harsh Neotia, chairman of Ambuja Realty; former air chief marshal Fali H. Major; and Gulf-based businessman Yusuff Ali joined Air India’s board earlier this year. Mahindra and Ali did not attend Thursday’s meeting.

Air India made three key appointments on 28 September, including those of Arora and Sukumar, despite objections raised at the time by some members of the board.

The independent directors subsequently informed Prime Minister Manmohan Singh’s principal secretary T.K.A. Nair that they had not been fully informed on the candidature and that the appointments had been made “without due diligence".

During Thursday’s meeting, Air India’s COO Gustav Baldauf also made a presentation to the board on the airline’s performance. And even as the board discussed new proposals, it reversed some earlier decisions that it had taken.

Thus, Air India has decided not to lease 10 Airbus A320 aircraft and four A330 aircraft. An offer from aircraft maker Boeing on compensation for delays in the deliveries of Dreamliner planes has also been rejected by the board.

The official mentioned in the first instance said that while Boeing has made an offer valued at $500 million (Rs 2,275 crore), the cash compensation is “much less". Boeing could not be immediately reached for comment.

A second person familiar with the development, who too did not want to be identified, added that the board has asked the airline to “prepare a white paper" on whether “cancelling the whole order will give more (money)".

Air India said in a statement released after the board meeting that its losses decreased from ₹ 7,189 crore in 2008-09 to ₹ 5,551 crore in 2009-10. The loss for the year ended March 2009 may be a record in the airline’s history as on 11 November last year it had announced a post-tax loss of ₹ 5,548.26 crore. It is unclear why the airline announced a different figure on Thursday.

Air India did not disclose losses in the first half of the fiscal year, but said revenue from ticket sales was up ₹ 1,034 crore from the year earlier and yields (a measure of the gross profit made by the airline on the sale of each ticket) were higher by 13%. The statement also said that operating profit showed a 6% improvement over the last year, without mentioning whether the absolute number indicated a profit or a loss.

An analyst welcomed the board’s decision on Arora. “If Air India wants to turn around, they need integrity and quality in the people that they appoint," said Mohan Ranganathan, a Chennai-based aviation analyst.